Shares of Investing Club holding Nvidia are ripping higher today and have now grown into the Trust’s largest holding at 5.4%.
The move follows a very bullish note from analysts at Wells Fargo in which the team reiterated their overweight rating and increased their price target to $320 (from $245) on the back of an analysis of Nvidia’s Omniverse Enterprise platform, which they believe will prove a “metaverse platform enabler.”
The call comes ahead of Nvidia’s November 9th keynote, where management is expected to launch general availability of the platform, an offering that management spoke to in great detail on the recent (FY2Q22) earnings conference call.
However, before getting into what exactly Omniverse is, we should note that perhaps the biggest takeaway for investors is that the analysts believe the Omniverse Enterprise offering, which will start at $9,000 per year for enterprise, “represents a significant platform expansion strategy for NVIDIA, which also entails a deepening recurring software story.” Notably, a free version will also be available for individuals – an important offer that we believe will help increase adoption as it will allow potential enterprise users to experiment learn the basics without that large cost barrier.
As members know, Wall Street puts a high value on recurring revenues (and rewards such companies with higher mutliples) because they are easier to forecast with greater certainty. Moreover, software offerings tend to bring greater profitability than hardware due to their inherent operating leverage – i.e., COGS don’t rise in lockstep with increased volume.
What exactly is the Omniverse?
On the recent earnings call, CFO Colette Kress called it a “simulation and collaboration platform that provides the foundation of the metaverse.” At the time of the call (August 18, 2021), Kress noted that over 50,000 individual creators had already downloaded the enterprise platform since it entered open beta back in December and that over 500 companies including BMW, Volvo and Lockheed Martin were evaluating it.
When asked for more detail on the platform, CEO Jensen Huang commented “it's a simulator that's physically accurate and physically based,” adding “Omniverse is going to be an overlay, if you will, of virtual worlds that increasingly people call the metaverse and you've now heard several companies talk about the metaverse. We all come from different perspectives; some of us from a social perspective, some of you are from a Gaming perspective, some of it in our case from an industrial and design and engineering perspective. But the Omniverse is essentially an overlay of the Internet, an overlay of the physical world and it's going to fuse all these different worlds together long-term. You mentioned VR and AR. You'll be able to go into the Omniverse worlds using virtual reality and so you wormhole into the virtual world using VR. You could have an AI or an object portal into our world using augmented reality.”
From a collaboration perspective, this is a huge leap as users across the globe can work together, connecting multiple applications to Omniverse and have them run live on the platform. What this means is that there is not longer a need to export and import between applications. Simply connect the applications to Omniverse, go back and forth between the apps and see the updates reflected live in Omniverse.
That is certainly useful for a single creator that uses several applications but it is exponentially more efficient when we consider an enterprise environment with several teams working with different applications on one project at the same time.
Quantifying what all this means to investors, the analysts at Wells Fargo think that this can open up an additional $10 billion market opportunity for Nvidia as they “expect a near-term inflection in Omniverse adoption in the enterprise segment; specifically in design as real-time simulation boosts engineering productivity.” While $10 billion is certainly impressive, the analysts believe the true upside could exceed that level over time “as digital assets and digital twins become significant economic drivers.” Not to mention that Nvidia chips represent the “brick and mortar” of the metaverse due to their importance in the data center (where the metaverse essentially lives) – so as the metaverse grows, so too does the need for increase compute power and therefore demand for Nvidia’s hardware offering.
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(Jim Cramer's Charitable Trust is long NVDA.)
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